As the year comes to an end, and tax season looms closer, social media is full of tempting scenarios for tax savings. But, be careful, not everything you see is true! For instance, you can't buy an expensive car, like a Land Rover, for a day, sell it, and then write it off. But, it is true that you can buy cars through your business.
A lot of businesses buy cars for different reasons. For example, your local pizza shop needs a car for deliveries. Before you pull the trigger to purchase a car through your business, here are a few things you need to know.
Generally, businesses can only get tax deductions for costs related to using the vehicle for work. If the car is also used for personal reasons, those costs can't be deducted. Also, to maximize your deductions, the car needs to be used for business 50% of the time or more. For example, if you worked as a house inspector and used the car for both work and personal use, you'd have to divide the costs correctly. But, if you were a builder and used a truck only for work, all costs could be deductible.
Also, it matters who owns the car. If the business owns it, all costs of running it, like gas, insurance, and repairs can be tax-deductible. But, if it's your personal car, only work-related costs can be deducted.
For a car owned by the business, the miles driven for work can be deducted. The IRS allows companies to either deduct the real costs or use a standard amount per mile. For 2023, the standard mileage rate for business is 65.5 cents per mile.
Be sure to keep a mileage log for tracking the number of miles driven for each trip, the date and time of each trip, and the final destination of each trip.
Be careful here, you can't count miles driven and other car costs, like gas or insurance, at the same time. Double dipping is not allowed. It’s either mileage or car-related expenses, but not both.
If you choose to deduct actual expenses, you should keep a careful record of all costs. Then, you can claim a part of these expenses based on how much the car was used for work.
In general, keeping accurate records of car costs and when the car was used for business is a smart idea.
Everyone's situation is different, so talking with an expert, like a CPA or business advisor, can help you make the best choices for your unique case. We get these questions a lot this time of year. Want to discuss your specific situation? We’re happy to help. Call us anytime at (404) 975-2945.
